Question 1: The price of ABC stock is $100 per share. The riskless interest rate for continuous compounding is 4.5% and the stocks volatility is 30%. ABC stock does not pay dividends.

1. (a) A call option on ABC stock expires in three months, has a strike price equal to $95 per share, and is European exercise. Using a binomial tree with two time steps, what is the price per share of the call option? Use replication to answer this question.

2. (b) Calculate the option price per share again, this time using risk neutral valuation instead of replication.